China, the world's biggest maker of solar panels, will limit construction of new photovoltaic manufacturing plants to curb excess capacity in a move that may encourage consolidation within the industry.

New solar plants that "purely" expand capacity will be strictly banned, the Ministry of Industry and Information Technology said in a statement on its website yesterday.

Annual spending by companies for research and development and upgrading equipment must total at least 3 per cent of revenue and must exceed 10 million yuan (HK$12.6 million).

Chinese authorities have pledged to cut overcapacity in industries from steel to paper as policy makers seek to reduce the economy's reliance on investments and exports.

A global oversupply of solar panels led to a 20 per cent plunge in prices last year, according to data.

The policy will slow efforts to expand production capacity in favour of mergers and acquisitions as a growth strategy for the biggest companies, said Angelo Zino, an analyst with S&P Capital IQ in New York.